I have this impression that it’s seen as a riskier decision to buy a home, knowing you won’t live in it long enough to pay off the mortgage and then sell it when you’re ready to move away, when compared to renting a home. Am I off base on that, and if so, why is this the case?
In: Economics
1) You can always try to plan expenses, but a lot of homes will come with some kind of unexpected, expensive problem to fix within the first 1-3 years. Things that drastically reduce selling value or cause other problems that will, if you don’t fork up the cash/credit to fix it yourself. HVAC, Hot Water, Sewage/Septic, Roof, Foundation, Flooring, Electrical, Plumbing, Kitchen updates, Outdoor Landscaping, New Local Laws/Public Policies, etc)
2) One of the unique advantages of homeownership as an investment is that this is one of the only reasons a lending institution would be willing to loan you so much capital over so much time. There is virtually no other type of loan you can get that will give you so much buying power for such favorable terms like a <10% APR. By selling early, you negate much of the long term advantages of this type of investment. Most of your early payments will be going towards interest, not principal. You will not have much equity when you want to sell, you’ll figuratively be like a shareholder, not a true owner, with how little you’ve actually paid off. The house will not have adequate time to appreciate, and in such short time there’s really not as strong of a guarantee it will not depreciate. Imagine buying a house in 2006. Economy’s booming one moment, a few quarters later and your house has actually *lost* value. Now you’re a bagholder, anxiously awaiting *years* for another boom to see your investment be profitable again.
Short term, it’s usually just not worth it. People often don’t get mortgages unless they are reasonably certain they are okay with owning the property for the foreseeable future, 5-7+ years. Typically, by that point they have paid a significant portion of their loan *and* the house has appreciated a decent 15%+.
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